"A global earthquake" is how Prof. Yossi Gross, one of the drafters of the Companies Law, describes what has been happening in the past few months in the supervision and control of company operations.
On Tuesday Gross said the collapse of companies in the United States and Israel and the massive write-offs by banks must be disturbing the sleep of many people waiting for criminal charges to be filed.
"This has already alarmed the U.S. Congress into passing the Sarbanes-Oxley law, against President George Bush's views, and which has far-reaching implications," said Gross.
Two months ago the Israeli Supreme Court laid full responsibility for the North American Bank affair - an Israeli bank that collapsed in the late 1980s - on the shoulders of the board of directors. Under the heavy shadow of this and the accounting scandals at WorldCom and Enron, a few hundred directors of leading Israeli companies assembled in Herzliya on Tuesday, along with lawyers and accountants, for an annual conference organized by the Israel Management Center (IMC).
The conference addressed the responsibility of directors for supervising and controlling companies in light of stricter court rulings and new legislation that expands ways to indict directors. There is a strengthening consensus that the director is the main supervisor of management and protector of shareholders.
A few speakers referred to the conventional wisdom that controlling shareholders want directors who have no opinion and no time and see the board itself is a necessary evil. The speakers said some directors have a distorted view of their role - taking a seat as an honorable way to retire, and ignoring any obligations or responsibility they might have.
Experts say directors are responsible for supervising the management. The directors should examine a company's operations, actively take part in meetings, prepare for them and read company material, ask questions and demand explanations.
It was unfortunate that the directors of Noga, Rogozin, Bolus and the Peled-Givony group's companies were absent from the conference. All of these collapsed in the past year leaving minority shareholders, creditors and employees with nothing.
The ruling of Supreme Court President Justice Aharon Barak in the collapse of the North American Bank was mentioned again and again at the conference. Barak redefined the responsibility of a board and shattered the "honorary" theory. "A director is not an honorary position," wrote Barak. "This position is not a mere reward for past services to the state or society; it is not simply a respectable way to retire."
Prominent speeches at the conference included Barak's lecture on the role of the judge in a democratic society, and a lecture by Moshe Terry, chairman of the Israel Securities Authority. Terry opened his address by confronting the heads of the Association of Publicly Traded Companies, who last week had spoken out strongly against the legislative activities of the authority in general, and regarding deals by substantial shareholders in particular.
Association chairman Danny Goldstein on Monday said the authority was pushing for a populist and Draconian law that would hamper companies' activities. Terry responded that these words should never have been uttered since the authority is attentive to publicly traded companies and to other interested parties.
"We have not decided anything yet and already they are jumping [at us]," said Terry. "What were they thinking? That we would sit at home and do nothing? We will continue to do our job."
On the responsibility of board members, Terry said he intends to raise public awareness about the qualifications of directors in accounting and financial matters. The authority is planning to demand broad disclosure regarding the directors' understanding of these fields.
Terry said proper disclosure can be an indirect tool for guiding the behavior of the companies and their executives, and such a requirement would lead to an improved quality of directors.
Terry said at this stage he has no intention of intervening and setting rules for the qualification of directors, since this would be considered interference in a company and the way it is run. He added, however, that he cannot ignore the gap that has been revealed between the abilities of certain directors and the complexity of the issues for which they are responsible.
"The gap between the qualifications and the complexity of the duties sometimes raises doubts about directors' abilities to fulfill the important duties imposed on them," he said. "The complexity of the business world, the rules of financial reporting and the legal economic environment in which the publicly traded companies operate, create an obligation to depend on board members who are suitably qualified to cope with the tasks facing them."
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